Last American (Wireless) Virgin

It's becoming a rite of summer: as the mercury rises, Apple introduces a new version of its iPhone. And as the new-and-improved device went on sale last week, campers once again lined the sidewalk in midtown Manhattan. The new iPhone features faster Web browsing, clearer audio and basic GPS functions; so far, reviews have been mostly positive. But as early adopters clamor for this latest high-tech status symbol, let us consider the group at the other end of the wireless bell curve: the one in seven Americans who still don't have a cell phone.

According to the latest data, the U.S. "adoption rate" for mobile phones stands at 85 percent. That's higher than the percentage of Americans who have DVD players (84 percent), home PCs (80 percent), digital cameras (69 percent) or MP3 players (40 percent), according to the Nielsen Co. "The concept that within my lifetime we'd have the kind of penetration we have today is unimaginable," says Martin Cooper, 79, the former Motorola researcher who invented the portable cell phone in 1973. But for wireless providers, it's a mixed blessing. With fewer virgin customers to bring online, the industry's subscriber base grew by just 8.8 percent in 2007. To keep revenues rising, the big carriers are focused mostly on stealing each others' existing customers and getting mobile users to spend more on ringtones, streaming music and other add-ons. But a handful of start-ups are aggressively pursing wireless holdouts. The bulk of the un-mobile fall into three groups, says senior analyst Chris Collins of Yankee Group: children, the elderly and the credit-challenged. (There's actually a fourth group, prison inmates, but companies haven't yet found a way to target that elusive niche.)

Lots of parents have mixed feelings about kids' having phones, but they're showing up in school backpacks at earlier ages. By some estimates, half the country's 28 million 8- to 14-year-olds already have handsets of their own. To attract these youngsters, big carriers all offer discounted "family plans," but lately smaller companies have tried to sell phones and service plans designed specifically for kids. Among the latest entries is one from a company called kajeet. Its phones allow parents to set limits on calls or texts; remotely turn off the device during school hours, or block calls or texts from bullies. To prevent surprise $300 monthly bills, kajeet features a pay-in-advance system, with a basic charge of $10 a month and 10 cents per minute. CEO Daniel Neal says consumers are becoming more averse to the "hidden gotchas"—cancellation fees, service fees and random charges—found in typical wireless plans. Neal believes 80 percent of the 8-to-14 crowd will have a phone within three years.

Fear of runaway bills is a hurdle for elderly consumers, too. But more of them (and their adult children) are becoming convinced it's good to have a phone handy for emergencies. To appeal to this crowd, last year Jitterbug began selling a $147 phone with an uncluttered keyboard, a huge display and other elder-friendly features (including a $15-per-month, 30-minute rate plan). It has no camera or text messaging, and if a user gets confused while making a call, he can hit zero and ask an operator to connect him to someone on his contact list. Jitterbug hopes the phones may have appeal beyond the elderly: in a May survey it commissioned, 32 percent of mobile subscribers said their current phone has more features than they know how to use. "Simplicity is really the cornerstone of our business," says cofounder Arlene Harris.

For consumers without bank accounts or credit scores—the third big group of cell-phone holdouts—prepaid phones have long offered an alternative to traditional wireless contracts. Lately, per-minute charges have come down from 35 cents to 10 cents, and companies have offered a better variety of phones; as a result, prepaid phones have been the fastest-growing segment of the cell business. Even so, companies are trying new ways to make them appealing. Trumpet Mobile, which began selling prepaid phones in Radio Shack stores last year, gives customers a phone, a prepaid debit card and the ability to send money via mobile phone using Western Union. Trumpet hopes its service becomes popular among Latino immigrants, who are already using it to send money to relatives overseas.

While these start-ups are long on imagination, so far none will say exactly how many customers they've signed up. That leads observers to believe their numbers are low and their odds of survival are unclear. Indeed, one reason big wireless companies haven't chased the holdouts more aggressively is that they aren't likely to spend $49 per month—the amount of the average U.S. mobile customer's bill—making them only marginally profitable (if not unprofitable). And while parts of Europe and Asia feature wireless penetration rates above 100 percent (thanks to people who carry multiple phones), no one is ready to bet when America may hit the magic number, partly because our country still has rural areas with poor coverage. "There is some argument that it will never get there—that it will never be cost-effective," says Richard Siber, a veteran industry consultant. So even as the early adopters keep buying phones full of new tricks, there will remain at least a smattering of folks who can't be blamed for the obnoxious ringtones that have become so much a part of life in our wireless age.

© 2008